Chinese man pleads guilty in $100 million stolen software sting

John Shiffman

5 Min Read

WILMINGTON, Delaware (Reuters) - In a case U.S. officials say is the first of its kind, a Chinese businessman pleaded guilty Monday to selling stolen American software used in defense, space technology and engineering - programs prosecutors said held a retail value of more than $100 million.

The sophisticated software was stolen from an estimated 200 American manufacturers and sold to 325 black market buyers in 61 countries from 2008 to 2011, prosecutors said in court filings. U.S. buyers in 28 states included a NASA engineer and the chief scientist for a defense and law-enforcement contractor, prosecutors said.

U.S. officials and the Chinese man’s lawyer, Mingli Chen, said the case was the first in which a businessman involved in pirating industrial software was lured from China by undercover agents and arrested.

The businessman, Xiang Li, of Chengdu, China, was arrested in June 2011, during an undercover sting by U.S. Department of Homeland Security agents on the Pacific island of Saipan, an American territory near Guam.

Video from the undercover meeting in Saipan, filed as evidence in court, is expected to be made public during a press conference Tuesday by John Morton, director of U.S. Immigration and Customs Enforcement, and Charles M. Oberly III, the U.S. Attorney for Delaware.

Li, 36, originally charged in a 46-count indictment, pleaded guilty late Monday to single counts of conspiracy to commit criminal copyright violations and wire fraud.

“I want to tell the court that what I did was wrong and illegal and I want to say I‘m sorry,” Li told U.S. District Judge Leonard P. Stark during a 90-minute hearing in federal court. The Chinese citizen spoke through a translator.

In a court filing, prosecutors David Hall and Edward McAndrew said the retail value of the programs Li sold on the black market exceeded $100 million.

During the hearing, Li told U.S. District Judge Leonard Stark that he disputes that figure. After the hearing, his lawyer said Li did not realize the retail value of what he was selling until he was caught and plans to present his own estimate at sentencing, which is set for May 3, he said.

In recent years, U.S. officials have targeted software pirates overseas but bringing them to the United States has proved difficult.

In one of the largest copyright cases, U.S. prosecutors last year charged seven people, including Megaupload founder Kim Dotcom, with racketeering conspiracy and copyright violations. The indictment alleges that Dotcom, who lives in New Zealand, ran an organization that earned $175 million selling an estimated $500 billion worth of pirated movies, TV shows and other entertainment media. Dotcom is fighting extradition from New Zealand.

EXPENSIVE SOFTWARE

The Li case involves sophisticated business software, not entertainment software, and thus small quantities of higher-priced products. The retail value of the products Li pirated ranged from several hundred dollars to more than $1 million apiece. He sold them online for as little as $20 to $1,200, according to government court filings.

At one point, Crack99.com and Li’s other sites offered more than 2,000 pirated software titles, prosecutors said.

Li trolled black market Internet forums in search of hacked software, and people with the know-how to crack the passwords needed to run the program. Then he advertised them for sale on his websites. Li transferred the pirated programs to customers by sending compressed files via Gmail, or sent them hyperlinks to download servers, officials said.

“He was pretty proud of himself,” Chen said of his client’s business acumen. “He did not realize it was such a big crime.”

Agents from Immigration and Customs Enforcement/Homeland Security Investigations learned of Li’s enterprise after an unidentified U.S. manufacturer noticed his company’s software for sale on crack99.com.

Working undercover for 18 months beginning in early 2010, the U.S. agents made at least five purchases from Li. These included pirated versions of “Satellite Tool Kit” by Analytical Graphics Inc. of Exton, Penn., a product prosecutors said is “designed to assist the military, aerospace and intelligence industries through scenario-based modules that simulate real-world situations, such as missile launches, warfare simulations and flight trajectories.” Agents bought software worth $150,000 retail for several thousand dollars.

Agents lured Li from China to the U.S. territory of Saipan under the premise of discussing a joint illicit business venture. At an island hotel, Li delivered counterfeit packaging and, prosecutors said, “Twenty gigabytes of proprietary data obtained unlawfully from an American software company.” Officials did not identify the company in court documents.